IAPF Conference 2016 Macro view Keith Wade, Economist, Schroders - - PowerPoint PPT Presentation
06/04/20 16 11:52:53 IAPF Conference 2016 Macro view Keith Wade, Economist, Schroders For professional investors and advisers only. Not suitable for retail clients IAPF Annual Investment Conference 06/04/2016 11:52:54 Macro overview 2016:
IAPF Annual Investment Conference
06/04/20 16 11:52:53
For professional investors and advisers only. Not suitable for retail clients
Keith Wade, Economist, Schroders
IAPF Annual Investment Conference
2016: storm warning
Key ey q ques estio ions
06/04/2016 11:52:54
IAPF Annual Investment Conference CNY Y vs s glob
uity m mark rket Oil l vs s global e l equit ity y marke ket
High correlations at times of stress
Source: Thomson Reuters Datastream, Schroders, 30 March 2016. CNY - Chinese Yuan Renminbi
06/04/2016 11:52:54
IAPF Annual Investment Conference Has gro rowth c h collapsed? Or j r jus ust s slow
Will the real China please stand up?
Source: Thomson Datastream, Schroders Economics Group, 30 March 2016
06/04/2016 11:53:02
5 6 7 8 9 10 11 12 13 14 5 6 7 8 9 10 11 12 13 14 2008 2009 2010 2011 2012 2013 2014 2015 2016 Schroders Activity Model GDP y/y, % y/y, % 5 10 15 20 25 30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP Li Keqiang index % y/y
IAPF Annual Investment Conference
CNY policy will impact dollar strength
Source: Thomson Datastream, Schroders Economics Group, 30 March 2016
06/04/2016 11:53:02
95 100 105 110 115 120 125 130 6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 2011 2012 2013 2014 2015 2016 USD/CNY Spot China effective exchange rate, nominal (BIS) (RH Scale) Index USD/CNY spot
IAPF Annual Investment Conference
FX reserves are declining sharply
Source: Thomson Datastream, Schroders, 30 March 2016
06/04/2016 11:53:02 Chi hina na f fore reign e n excha hang nge re reserves
Actual, USD, billions 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2006 2007 2008 2009 2010 2011 2012 2014 2015 2013 USD, billions, monthly actual change 150 100 50
2006 2007 2008 2009 2010 2011 2012 2014 2015 2013 Change in FX Reserves (3 month moving average)
IAPF Annual Investment Conference
The energy tax cut in the US vs the hit to oil and gas capex
Source: Thomson Datastream, Schroders Economics Group, 30 March 2016
06/04/2016 11:53:02 200 400 600 800 1000 1200 1400 1600 20 40 60 80 100 120 140 96 98 00 02 04 06 08 10 12 14 16 Brent Crude U$/BBL US Rotary Oil Rigs (rhs) 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 3.5 4 4.5 5 5.5 6 6.5 01 03 05 07 09 11 13 15 Energy as a % of Disposable Income Gasoline Retail Regular U$/GL (rhs) Count Price per barrel Dollars per gallon %
IAPF Annual Investment Conference
Percent of savings from lower gas prices spent on non-gas categories
Source: JPMorgan Chase Institute, Schroders Economics Group, 14 October 2015
06/04/2016 11:53:02
18% 7% 6% 1% 32% 10% 7% 6% 5% 5% 33% 4% 2% 6% 2% 73%
IAPF Annual Investment Conference
EM exports not responding to DM recovery
Source: Thomson Datastream, Schroders, 30 March 2016
06/04/2016 11:53:05 20 15 10 5
1992 1994 1998 1996 2000 2002 2004 2006 2008 2010 2012 2014 2016 World export volumes y/y% Average trade growth Recession y/y%
IAPF Annual Investment Conference
No hard landing, but watch for a wave of deflationary pressure from EM
Source: Thomson Reuters Datastream, Schroders, The Economist,, 30 March 2016
06/04/2016 11:53:05
2 4 6 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 US core goods prices UK goods prices
Deflationary pressures from emerging markets as supply expands Inflationary pressures from emerging markets as demand expands
y/y%
IAPF Annual Investment Conference
US unemployment cycles and real Fed funds rate
Source: Thomson Datastream, Schroders Economics Group, 30 March 2016
06/04/2016 11:53:05
0% 1% 2% 3% 4% 5%
0% 1% 2% 3% 4% 5% 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Recessions Unemployment gap (U/E rate minus NAIRU) Real interest rates (Fed funds rate minus core inflation), rhs inv.
IAPF Annual Investment Conference
Scenarios versus baseline
Source: Schroders Economics Group, 20 February 2016
06/04/2016 11:53:05
IAPF Annual Investment Conference
March 2016 | For professional advisers only. This material is not suitable for retail clients
IAPF Annual Investment Conference
Snap polls suggest deal makes voters more likely to vote to leave
Source: The Sun, Metro, Daily Mail from 3 February 2016
06/04/2016 11:53:05
IAPF Annual Investment Conference
Voting intentions on an EU exit neck and neck
Source: ComRes, ICM, ORB, YouGov, BMG Research, Survation, Ipsos MORI Panelbase, Pew Research Centre, Norstat, Populus, TNS-BMRB. Schroders Economics Group. Last survey conducted 24 March 2016
06/04/2016 11:53:05
IAPF Annual Investment Conference
Betfair implied probability shows a 34% chance of voting to leave
January 2016 February 2016 March 2016
Source: Betfair.com, 30 March 2016
06/04/2016 11:53:05
IAPF Annual Investment Conference
EU, 44.9% US, 17.2% Ger, 8.5% Neth, 6.9% Fra, 6.2% Ire, 5.5% Swi, 3.5% Bel, 3.3% Chi, 3.3% Ita, 2.9% Spa, 2.8% EU, 51.8% Ger, 12.3% US, 9.3% Neth, 6.9% Chi, 6.6% Fra, 6.6% Spa, 4.3% Bel, 4.1% Nor, 3.8% Ita, 3.7% Ire, 3.2% 60% 40% 20% 0% 20% 40% 60% % of total UK imports % of total UK exports
UK exports and imports as share of total (2012-2014 average)
Source: ONS, Schroders Economics Group, 3 March 2016
06/04/2016 11:53:05
IAPF Annual Investment Conference
Trade, investment and migration
Tr Trade:
Inves estmen ent:
Migra ration: n:
Source: ONS, Schroders Economics Group, 3 March 2016. FDI = Foreign direct investment
06/04/2016 11:53:05
IAPF Annual Investment Conference
IAPF Annual Investment Conference
Options for Brexit
After ter lea eaving th the E e EU, th thes ese e are s e som
e of th the m e mod
els th the U e UK cou
– Full access to EU markets – Still pay 90% of fees, and bound by EU rules on employment, health & safety, transport and the environment – However, no political influence on rules, and must implement any new regulations – Free movement of labour and capital
– Partial access to EU markets (goods), almost no access to services markets – Pays less in fees (40%), but can be selective on most rules depending on market access – Free movement of labour is required, but no free movement of capital – Separate bi-lateral trade agreements required, which often become outdated as EU changes regulations
– T ariff free access to most goods markets, but some regulation required. Fees are very small – No free movement of labour or capital
Source: Schroders Economics Group, 4 March 2016
06/04/2016 11:53:05
IAPF Annual Investment Conference
Highly uncertain outlook in the event of a Brexit vote
– Short-term negative as consumers and corporates pause in the face of uncertainty, higher inflation from fall in GBP – Long-term depends on renegotiation, but risk of reduced FDI and trade whilst lower immigration will slow trend growth
– GBP likely to be negatively impacted – Most stocks with large EU trade would also suffer – Some stocks with little to no trade with the EU could benefit from weaker GBP – Gilts could rally on uncertainty, but could also suffer from ratings downgrades (S&P will downgrade by 2 notches) – Longer-term, possible loss of business due to increased costs of trade with EU
– Scotland would almost certainly call for a referendum to leave the UK
Source: Schroders Economics Group. Image right from Whatinvestment, 4 March 2016. Forecast risk warning: Please see the information slide at the end of this presentation.
06/04/2016 11:53:06
IAPF Annual Investment Conference
For professional investors only. This material is not suitable for retail clients. The views and opinions contained herein are those of the Schroders Economics Group, and may not necessarily represent views expressed or reflected in
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. This presentation is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third party data is provided without any warranties of any
The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. Issued in April 2016 by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 1893220 England. Authorised and regulated by the Financial Conduct Authority. INS04734 06/04/2016 11:53:06